Study says OTT is both friend, and potential problem, for pay-TV

For years, a common breakout session at industry conferences carried a title something like this: “OTT: Friend of Foe?”

Consumers who use best streaming video service are more likely to downgrade their traditional pay-TV services, they’re also significantly more likely to upgrade them.

This study says 9% of streamers downgraded pay-TV services during the past year, compared to just 6% of non-streamers. But nearly three times as many streamers (16%) upgraded to a higher pay-TV tier or added services, compared to 6% of non-streamers.

Research consultancy TNS also posits that an improving economy has helped increase the “quantity and diversity of video content entering the home via paid programming sources.”

TNS said roughly 1-in-6 (16%) of pay-TV subs changes their video service level each year, with households that both subscribe to pay TV and stream changing twice as often as non-streamers (25% compared to 12%).

TNS said streamers have increased their propensity to add services over the past three years (increasing from 12% in 2012 to 16% in 2014); they’ve reduced service levels between 8% and 9% for the past three years.

Among non-streamers the likelihood to add or reduce service levels has remained static for the past three years.

“These findings suggest that streaming is contributing to an overall rise in consumer appetite – and demand – for video content, instead of simply stealing a finite share of Pay TV programming,” said TNS VP Frank Perazzini. “Growth in the frequency of service upgrades is being driven almost entirely by households that also consume streaming video, leading to stronger ARPU performance by cable, satellite, and fiber television providers.”

Not surprisingly, streamers who adjust service levels tend to be younger. Adults younger than 30 make up about one fifth of pay TV subscribers with streaming technology, but represent one-third of households that recently purchased more channels and/or features from their traditional video provider.

“Younger consumers are especially proactive and indulgent in their viewing habits,” said Perazzini, “having come of age in a world of unparalleled variety and choice in video content. They know what they want, and also how to get it.”

TNS said the percent of U.S. households that streamed video in the past month has increased to 34% from 27% in 2012. And, the number of viewers who paid for streaming services, a Netflix or Amazon service, for example, had increased even more, to 26% from 16%.

TNS said traditional pay-TV services have seen penetration drop slightly to 81% compared to 82% in 2012, something the researcher says implies that streaming and pay-TV services currently are not just coexisting, but symbiotic.

But, that may not last, especially as high-speed broadband penetration continues to increase, creating an even more favorable environment for streamers, as well as for companies, like HBO, that traditionally have not had a direct-to-consumer option, weakening a key strategic differential that pay-TV traditionally has enjoyed.

“HBO’s recent announcement of the launch of ‘a la carte’ OTT distribution for their content in 2015 could signal a shakeup among top cable, satellite, and fiber carriers,” said Perazzini.

TNS, part of Kantar, surveys nearly 25,000 U.S. households each quarter on their telecommunications habits.